STOCK SUPERSTARS ALERT FOR THE WEEK ENDING 4/19/2013

The AAII Portfolios

I am often asked about our model portfolios. Specifically, what are the differences among them and how does an investor go about following them? I’ll provide a brief overview in this week’s newsletter.

AAII developed a number of model portfolios to educate our members on how to construct and manage stock and mutual fund portfolios. We currently operate four model portfolios: the Model Shadow Stock Portfolio, the Model Fund Portfolio, the Stock Superstars Report and AAII Dividend Investing. All of the AAII portfolios are tracked with real-money investments made through a discount brokerage firm. The performance we report is net of all transaction costs.

AAII Sentiment Survey: Individual Investors Stay Pessimistic

Individual investors remain pessimistic about the short-term outlook for stocks, even though bullish sentiment did improve in the latest AAII Sentiment Survey.

Bullish sentiment, expectations that stock prices will rise over the next six months, rebounded by 7.5 percentage points to 26.8%. Even with the increase, this is the first time optimism has been below 30% on consecutive weeks since July 19 and July 26, 2013. The historical average is 39%.

Neutral sentiment, expectations that stock prices will stay essentially unchanged over the next six months, declined 1.3 percentage points to 24.9%. The historical average is 30.5%.

Bearish sentiment, expectations that stock prices will fall over the next six months, fell 6.3 percentage points to 48.2%. The historical average is 30.5%.

This is the first time since March 5 and March 12, 2009, that the bull-bear spread has been below -20 percentage points on consecutive weeks. The bull-bear spread is the difference between bullish and bearish sentiment.

Though optimism did improve, AAII members remain pessimistic about the short-term outlook for stock prices. Both bullish and bearish sentiments are still more than one standard deviation from their historical averages, making this week’s readings unusual. This week’s higher response count, 365 votes, suggests that last week’s large swings were not the result of fewer AAII members taking the survey.

The recent return of some downward price volatility is having an effect on individual investors’ moods. Also playing a role are mixed views about the pace of economic growth, ongoing frustration with Washington and concerns that stock prices have moved too far, too fast.

This week’s special question asked AAII members what would cause the market’s current upward run to end. Responses varied. A change in monetary policy leading to less Federal Reserve stimulus or high rates was cited by about 14% of respondents. A similar number of respondents said weak earnings or poor profit guidance would drag down stock prices. Geopolitical issues, particularly with North Korea, were listed as a potential downward catalyst by about 11% of respondents. Slower or negative economic growth came in fourth, with slightly less than 10% of respondents saying it would adversely affect the markets. (Some AAII members listed more than one catalyst.)

Here is a sampling of the responses:

“If the Federal Reserve cranks up interest rates or just hints that it might, then the market would probably plunge.”

“The Fed pulling back on stimulus to the economy”

“A lack of good earnings growth and weakening economic data.”

“Something drastic like war with North Korea or Iran.”

This week’s AAII Sentiment Survey results:

Bullish: 26.8%, up 7.5 percentage points

Neutral: 24.9%, down 1.3 percentage points

Bearish: 48.2%, down 6.3 percentage points

Historical averages:

Bullish: 39.0%

Neutral: 30.6%

Bearish: 30.6%

The AAII Sentiment Survey has been conducted weekly since July 1987 and asks AAII members whether they think stock prices will rise, remain essentially flat, or fall over the next six months. The survey period runs from Thursday (12:01 a.m.) to Wednesday (11:59 p.m.) The survey and its results are available online at: http://www.aaii.com/sentimentsurvey

Sell of the week 4/17/2013

AAII Journal Editor Charles Rotblut Editor explains to Chuck Jaffe of MarketWatch why Vectren Corp. (VVC) is his “Sell of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

BUY OF THE WEEK 4/16/2013

AAII Journal Editor Charles Rotblut explains to Chuck Jaffe of MarketWatch why UniFirst Corp. (UNF) is his “Buy of the Week” on the MoneyLife Radio Program. MoneyLife is a daily personal finance show that sorts through the financial clutter to bring you the information you need to lead the MoneyLife.

STOCK SUPERSTARS ALERT FOR THE WEEK ENDING 4/12/2013

The Shrinking Dividend Yield

One consequence of the market’s ongoing rally has been shrinking dividend yields. The Dow Jones U.S. Index (IYY), an exchange-traded fund that tracks the largest 1,200 domestic stocks, yielded just 1.9% at the end of last week. Within the slightly broader S&P Supercomposite 1500 index, just 263 members traded with yields above 3.0%.

AAII is a nonprofit organization that arms individual investors with the education and tools they need to build wealth. From stock investing to financial planning and retirement funding, AAII covers all your needs.